What is the best time to reduce Next year’s taxes? When it comes to reducing the tax bite for next year, the time to act is now. There are a number of steps you can take to reduce the taxes you pay, including itemizing deductions, contributing to a retirement plan, etc., but the time to take those steps is now.
Here are some of the most effective ways to reduce your tax burden going forward:
#1 – Contribute To Your Retirement Plan
For many employees, the traditional defined benefit pension plan is a thing of the past, largely replaced by employee contribution plans like the 401(k).
If you are not contributing to your company’s 401(k) plan. You are missing out on one of the best tax saving strategies out there. Contributions made to a 401(k) plan are not subject to taxation, and the taxes are deferred until they are withdrawn in retirement.
Also Read: How To Use Cash Advances Properly?
For those whose employers do not offer a 401(k) plan. Contributing to an Individual Retirement Account (IRA) can provide many of the same benefits. The contributions to a traditional IRA are deductible from current income, and the taxes are deferred until the funds are withdrawn in retirement.
#2 – Consider Contributing To a Flexible Savings Account (FSA) or Health Savings Account (HAS)
The FSA and HAS can help reduce taxes. The funds contributed to these two accounts are deducted from your paycheck before the taxes are calculated. The funds are placed into a special account, and then refunded to you when documentation of qualifying medical and dental expenses are provided.
#3 – Give To Your Favorite Charity
If you itemize deductions on your tax return, you can take advantage of the deduction for charitable donations. If you donate hard goods, like clothing, furniture and household goods, to charities like the Salvation Army or Goodwill, be sure to get a receipt which shows the value of the items.
#4 – Remember The Lower Tax Rates For Long Term Capital Gains
The tax rate for long term capital gains is now capped at 15%, and it is a mere 10% for those in the lowest tax bracket. If you have been holding off realizing a capital gain on a stock you feel has seen better days. Now might be the time to sell
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